Today we get the ISM manufacturing index for June

Jens Nærvig Pedersen Danske Bank A/S

Market Movers

Today we get the ISM manufacturing index for June. Regional indices and the Markit PMI manufacturing index point to a stabilisation in the ISM manufacturing index, while the order-inventory balance points to an increase. We think ISM manufacturing will stay around the current level over the next months and estimate the index was unchanged at 51.3 in June.
In Norway and Sweden manufacturing PMIs will be published today. In Norway, the unemployment rate is due for release.

Selected Market News

Bank of England Governor Mark Carney delivered a very dovish speech yesterday, stating that the ‘economic outlook has deteriorated’ due to Brexit uncertainties and that he personally thinks ‘some monetary policy easing will likely be required over the summer’. Carney said that he viewed the two meetings in July and August as a ‘package’ and that BoE will publish the first full projections after Brexit in the next Inflation Report due in August. We believe the BoE will eventually cut the bank rate to 0.00% from 0.50% and expand the Asset Purchase Facility (APF) by GBP150-200bn. The GBP weakened and stock prices rose on the comments.

Nominations for conservative party leadership closed yesterday. Boris Johnson surprised by not entering the run and five candidates are thereby lined up: Stephen Crabb, Liam Fox, Michael Gove, Andrea Leadsom and Theresa May with Gove, Crabb and May likely seen as the three ‘main’ candidates. Next week the Conservative MPs have to reduce the number of candidates from five to two. Party members will then vote and the new leadership is chosen on 9 September.

The Chinese manufacturing PMI indices released this morning were somewhat disappointing in our view. The official manufacturing PMI dropped slightly to 50 in June from 50.1 in May and the Caixin manufacturing PMI declined to 48.6 from 49.2 – we had expected both indices to stay unchanged. The official non-manufacturing PMI rose to 53.7 from 53.1 thus mitigating the lower activity in the manufacturing sector.

In Japan, the Tankan index for large manufacturers, which surveys the outlook for this sector, rose to 6 in Q2 from 3 in Q1, while the similar index for large non-manufacturers fell to 19 in Q2 from 22 in Q1. CPI inflation excluding fresh food dropped to minus 0.4% y/y in May from minus 0.3% in April. The overall weakness in Japanese key figures released this morning will put pressure on Bank of Japan to ease monetary policy further.

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Jens Nærvig Pedersen

Danske Bank A/S

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